Why Goldman's $550M Settlement Is Barely a Wrist Slap

Goldman Sachs has agreed to pay a $550 million fine to the
Securities and Exchange Commission, finally settling a high-profile fraud case over allegations of investor fraud.
The investment firm stood accused of hoodwinking clients by selling them
dubious mortgage securities that were designed by a hedge fund manager
betting against the assets. Though the settlement is being billed as "one
of the largest penalties in Wall Street history," a number of
financial bloggers think Goldman got off easy. Here's why:

The Fine Is Actually Minuscule, writes
Marian Wang at ProPublica: "The SEC
is touting the sum as the 'largest-ever penalty paid by a Wall Street
firm,' but how much does the settlement actually hurt Goldman? We looked
a up few numbers to put things into perspective:

It’s
about two weeks’ worth of profit. Goldman reported [5] (PDF) earning $3.3 billion in the first
quarter of 2010. That’s about $250 million in profit per week.

It’s
a sum that Goldman could pay immediately (and probably a hundreds of
times over).The company’s average global core excess liquidity—the
average worth of assets it could readily convert into cash—was $162
billion for the first quarter of 2010.

It’s a fair amount more
than what Goldman made on the deal the SEC sued over. Goldman
reportedly made $15 million
in fees [6] from the CDO deal that
landed Goldman in hot water. But keep in mind: Goldman did 25
of these so-called Abacus deals [7]
in all, and created many more CDOs without the Abacus label.

Goldman
Escapes Unscathed, blogs law professor Miriam Baer: "Forbes, and the WSJ online have both suggested that the episode has damaged
Goldman's reputation.
Sorry, but I'm not buying it. A fine that is half of what the media
speculated, paired with no significant admission of wrongdoing, does not
tarnish Goldman's reputation one bit with either its customers or its
investors. A recent report
by Andrew Ross Sorkin in the New York Times Dealbook suggested that
most of Goldman's customers were staying put. As for investors,
consider this:
as a result of after-hours trading, Goldman's stock is currently
trading in the neighborhood of $153 per share, up from $140 just one day
ago."

May Embolden Goldman, writes Felix Salmon at Reuters: "I’m just
surprised that they didn’t even get any management changes, or any kind
of mea culpa. The risk, of course, is that Goldman’s victory here will
only serve to exacerbate its arrogance. Could the Squids of West Street
become even more insufferable, now?"

Nothing
Was Learned, sighs John Lounsbury at Credit
Writedowns: "The SEC spokesman emphasized the need for accountability.
Has accountability been served? ...Nothing was said about 'deliberate'
actions. The implication I take away is that the assumption can be made
that the entire episode was inadvertent, accidental. I personally do not
subscribe to that interpretation."

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